Why is it Advantageous to Have a Diverse Supply Chain?

It’s always easy to get stuck in a rut. This is as true for a supply chain business as any other walk of life. However, whilst we’re seeing increasing diversity happen in overseas supply chains, we’re not seeing as much as we should here in the UK. This is reducing the advantage our supply chains could establish. So why is it advantageous to have a diverse supply chain?

The History of Diversity in the Supply Chain

If we look at a world renowned business, General Motors, we can see diversity in action. They have a specific Diversity Program which uses over 400 different suppliers within their chain. This is because, following the Civil Rights movement, all government agencies and their contractors (in the US) had to allow diversity in to their organisation. It’s now, largely, ingrained in American business culture. However, there is still a great deal of work to be done, and some underlying problems – especially in economic hard times.

This isn’t just about political sense, but straightforward economic sense. If you cut yourself off from a diverse range of suppliers then you are missing a valuable trick. New ideas, initiatives, and success, come from using the best from a diverse range of options. At the most basic level, diversity provides contingency – if there is disruption with one supplier, then security is maintained by another supplier stepping in to fill the breach.

A UK Example

In the UK, an excellent example of this is Waitrose. They ‘champion regional suppliers’ by getting local producers to supply their stores on a local, or regional, level. They look at quality and skill, provenance and integrity, above large suppliers. This provides each region with varied USPs and local buy-in.

The Problems with Diversity in the Supply Chain

In the US, when economic tough times are faced, it is often business practices such as diversity that take the cut. However, this is short-sighted. As Joset Wright-Lacy, President of the National Minority Supplier Development Council states:

“In my work with the National Minority Supplier Development Council (NMSDC), I have recently felt a deep sense of urgency as corporations begin to question the importance of minority-owned businesses to their commercial relationships and supply chains. The refrain is, “What is the ‘value proposition’ for minority supplier development?” That is, of what value is it for corporations to pursue stronger relationships with minority business enterprises (MBEs) in their supply chains? The question itself is deeply troubling, because it suggests both a belief that minority suppliers have to make a “special case” for inclusion in business opportunities and an assumption that minority suppliers can’t deliver service, value, and quality. This kind of thinking can lead to the placement of artificial barriers in front of minorities and usually leads to excuses for dropping support for supply chain diversity when corporate budgets are cut.”

This is within the wider context that diversity in the supply chain pays. A 2015 report by the Hackett Group stated that on average, supplier diversity schemes and programmes, add a staggering $3.6 million to the business purse for every $1 million spent in procurement operation costs. The maths for diversity make sense.

The Diversity Matters study (which included UK businesses) found that the top quartile for gender or racial and ethnic diversity are more likely to have financial returns above their national industry medians” and that “Diversity is probably a competitive differentiator that shifts market share towards more diverse companies over time.”

What Else Does Supply Chain Diversity Bring?

The biggest additional benefit that diversity in the supply chain brings is a boost to your organisational reputation. Where social responsibility matters on an increasing scale, diversity in the supply chain is essential. Social diversity within the supply chain is paramount to being viewed as an ethical organisation. It improves the image of the organisation, and this matters to the bottom-line.

How is Diversity Being Adopted in the UK?

We have lagged behind the US, largely because we haven’t had the political driver of the Civil Rights movement. However, we are beginning to realise that this isn’t just about politics, but about sound economic sense and business progress. It’s not just about social responsibility, and as always, the bottom-line can drive change in a way that nothing else can. The commercial benefits speak for themselves. It is advantageous to have a diverse supply chain for a myriad of reasons including expanding your customer base, greater speed to market, and of course growth opportunities.

By utilising a diverse supply chain you have contingency and resiliency established as you are not reliant on a sole supplier. Given the immense disruption a problem with such a powerful supplier could cause, it makes safety sense to protect from this through a more diverse supply chain. This means having geographically diverse suppliers so that problems in one area don’t apply to another, and business can keep rolling. You can also reduce time to market by using more local suppliers.

In many ways therefore, diversity can become synonymous with agility, and agility is imperative in the supply chain. Whilst it may be difficult to ensure the same cost-effectiveness with a smaller supplier as with a larger one, this can be mitigated by offering a desired service (such as next day delivery), or higher quality.

Sustainability is at the core of diversity. For our supply chains to not just survive, but thrive, with all of the constraints and difficulties of the current market, we need to use every trick in the book. Ensuring we focus on corporate social responsibility, for both reputational and economic reasons, is too important to side-step.

If you’re unsure about how you can make your supply chain more diverse, and how to future-proof your business, then our supply chain consultants are here to help. Give us a call on 0121 517 0008 and we can talk you through some solutions.

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Tamsin Giles, Client Service Coordinator, contact photo

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